Refineries May Get Back $135M from Texas

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Three commissioners appointed by Gov. Rick Perry may grant some of the nation's largest refineries a tax refund of more than $135 million -- money Texas' cash-strapped schools and other local governments have been counting on to help pay teachers and provide other public services.

The refund would mean more pain for some communities after a year in which state lawmakers had to grapple with a $27 billion shortfall and slashed spending on public schools by more than $4 billion. Nearly half the refund would be taken from public schools, and those in cities where the refineries are based would be hurt the most.

"We were already cut at the knees as it is, but more cuts? It's appalling," said Patricia Gonzales, a single mother of 13-year-old twins at Park View Intermediate School in Pasadena, a refinery town just south of Houston. Gonzales was just elected president of the school's new parent-teacher organization, which was formed this summer after the state budget cuts left the school lacking everything from pencils to paper towels.

The Texas Commission on Environmental Quality is evaluating 16 requests for the refund, which concerns a piece of pollution-controlling equipment. If granted, the refund total for those requests could add up to more than $135 million, according to county tax data and application documents analyzed by The Associated Press. What's more, agency documents show that if the commission grants the requests, at least 12 other refineries that have not sought a refund also could qualify.

The three-person commission last year expressed some support for the refund, prompting concern the panel is preparing to side with the industry in the middle of a budget crisis.

Should the commission approve the request, it would fall in line with Perry's argument on the GOP presidential campaign trail that by being friendly to business he has attracted businesses and jobs to Texas while other states suffered.

"Gov. Perry appoints individuals who are qualified and willing to serve, and expects they will consider all of the facts and make the appropriate decision," said Lucy Nashed, a spokeswoman for Perry.

The refund request has to do with a piece of technology used by refineries to minimize pollution. Beginning in 2006, the U.S. Environmental Protection Agency began requiring refineries to remove sulfur dioxide from diesel and gasoline in an attempt to reduce vehicle pollution. Many refineries had to either upgrade existing "hydrotreater" units or purchase new, more effective equipment.

Valero first asked for the refund for six of its refineries in 2007, and wants payment retroactive to that year. Since then, at least four other companies have joined in and asked for the same retroactive refund.

Valero is arguing that the units should be exempt under a Texas law that says industrial plants don't have to pay taxes on equipment purchased to reduce on-site pollution. The law saves companies millions, and is meant to encourage investment in new technology.

At first, the request was denied. The commission's staff said the hydrotreaters reduce pollution in diesel and gas, not necessarily at the plant. In fact, staff said, the hydrotreaters actually increased sulfur dioxide pollution near the refineries because the toxic gas is now burned off in a flare.

Valero appealed, and the panel's chairman, Bryan Shaw, said last April that the Legislature likely intended a broader interpretation of the law. He instructed his staff to research whether they could award partial exemptions to Valero. Shaw declined to be interviewed for this story, saying it could present a conflict because the issue will be brought before him again.

Valero alone could potentially get a refund of more than $92 million, but spokesman Bill Day said the San Antonio-based company believes the final refund -- if approved -- would be much smaller. He said appraisers will ultimately decide the value of the refinery properties and it's unlikely the numbers will be as high as those the companies noted on the applications they submitted to the commission.

There is no timeline for a ruling. The slow pace of decision-making has left municipalities and school districts in an uncomfortable position in which they collect -- and spend -- money they could be forced to return, acknowledged Susana Hildebrand, a chief engineer at the TCEQ.

"We don't have a statutory deadline, so there's not a legal impetus," she said. "I understand the concern that the taxing authorities have."

Refunding tax money would be yet another hit for counties, cities and school districts that are already cutting corners and improvising to make up for lost funds. Schools alone could be forced to fork over $62.8 million, according to data compiled by the AP.

In smaller, more rural counties -- where property taxes from large industrial complexes provide a big chunk of funding for schools and government services -- the impact could be greater. For example, in Moore County, where a Valero refinery is seeking exemptions on two units, a $15.8 million refund would amount to more than $720 per person.

"If it was a good year and property values were up it wouldn't be so bad," said Hugh Landrom Jr, president of Hugh Landrom and Associates, an engineering firm that does industrial appraisals for Galveston and other counties that are home to large refineries and chemical plants.

"It's compounded by the state budget cuts that are being passed down to everybody," Landrom said.

And because of a complex law aimed at evening the playing field between areas that have large refineries -- and a strong tax base -- and those that don't, all schools in the state would ultimately be impacted if the abatement is approved, though refinery towns would be hurt the most, said David Hodgins, consultant and attorney for the Texas Association of School Administrators.

"The dollars that are lost by these school districts directly affect the children of the employees that help make these companies what they are," Hodgins said.

For Gonzales and other parents in Pasadena, the prospect of the school district having to hand back money is terrifying. Already, the middle school her children attend has laid off eight staff members and is asking for parents to donate money to pay for basketballs, volleyballs and even gloves for the science teachers, Gonzales said.

The mom-turned-activist said she learned about the refineries' requests while lobbying earlier this year to convince Perry and the Legislature to dip into the state's so-called rainy day fund to ease cuts to the schools -- an effort that failed.

Gonzales lives near a miles-long stretch of refineries, where massive pipes and stacks light the night like skyscrapers do in other cities. An intense, burnt chemical scent hangs over the town.

"You smell it. That's what we're known for. Stinkadena because of the refineries," Gonzales said. "There are days when we can't go out because our children's asthma is that bad ... and then they want money back?"

Valero said no one -- not the refinery owners, municipalities, commission or appraisal districts -- knows how much the industry could get if a refund is granted.

"It's not going to be a disaster," said Day, the company spokesman.

"I guarantee you, it's not a surprise to the school districts," he added. "Yes, they spent the money, yes we're asking for an abatement on our pollution control equipment ... but this is really no different than a homeowner appealing their property tax, just on a larger scale."

In the meantime, Gonzales and other parents are planning to sell "$10,000 brownies" -- a gimmick aimed at raising awareness about how much money they would have to raise to make up for the lost refinery funds. The group also plans to boycott gas stations if necessary to fight the request.